Liquidity Commonality in the London Stock Exchange

Abstract

International audienceA number of events such as the international market crash of October 1987 and the 1997 East Asian crisis show that individual firm liquidity is affected by market-wide factors. However, research in systematic liquidity is still at an embryonic stage and given the gap in the literature, the paper offers first time evidence (to the best of our knowledge) on the presence of systematic liquidity in the UK using FTSE100 and FTSE250 stocks. The unique setting of the London Stock Exchange as regards changes in trading regimes, allows an original answer as to whether changes in the nature of market making from obligatory to non-obligatory, affect commonality in liquidity. Results indicate that commonality is quite strong for FTSE100 stocks at individual and portfolio level, while for the FTSE250 it is strong only at portfolio level. Overall commonality is on average similar across trading regimes, irrespective of the nature of the provision of liquidity

Liquidity Commonality in an Emerging Market: Evidence from the Amman Stock Exchange

“…However, commonality in the ASE is less (more) pervasive than commonality in quote-driven markets, namely the NYSE and the London Stock Exchange (LSE). The average coefficient of concurrent market liquidity for quoted spread (proportional quoted spread) in the ASE is smaller (larger) than those reported for the NYSE and the LSE by Chordia et al (2000) and Galariotis and Giouvris (2007), respectively. The free-entry (free-exist) characteristic of order-driven markets compared with quote driven markets, implies that commonality might be less (more) pervasive in the former.…”

“…Consistent with Brockman and Chung (2002) but in contrast to Chordia et al (2000) the results show that the individual stock liquidity measured by quoted spread, proportional quoted spread and effective spread is the most sensitive to changes in market-wide liquidity for small size groups. However, the results do not support the existence of industry-wide commonality in liquidity which is consistent with Fabre and Frino (2004) and Galariotis and Giouvris (2007).…”

Systematic liquidity: commonality and inter-temporal variation in the Portuguese stock market

“…Nevertheless, both studies prove that individual liquidity co-moves with market liquidity and that commonality in liquidity exists in the Spanish market. Galariotis and Giouvris (2007) offer evidence on the presence of systematic liquidity in the United Kingdom using FTSE100 and FTSE250 stocks, for the periods between October 1996and May 2001and January 2003and August 2004. During the period studied, the London Stock Exchange changed its trading regime: from a quote-driven to an order-driven regime for FTSE100 stocks and from a quote-driven to a hybrid regime for FTSE250 stocks.…”

“…Many studies have documented the existence of commonality in the US stock market, in particular the New York Stock Exchange (NYSE), a quote-driven market (Chordia et al 2000;Hasbrouck and Seppi 2001;Huberman and Halka 2001;Korajczyk and Sadka 2008;Kamara et al 2008). Nevertheless, recent studies also provide evidence of commonality in order-driven markets, namely in the Stock Exchange of Hong Kong (Brockman and Chung 2002, 2008, the Australian Stock Exchange (Fabre and Frino 2004;Sujoto et al 2008a), the Stock Exchange of Thailand (Pukthuanthong-Le and Visaltanachoti 2009), among others, or in changing regimes (Galariotis and Giouvris 2007).…”

Is the relationship between macroeconomy and stock market liquidity mutually reinforcing? Evidence from an emerging market

“…coined the concept of commonalities in liquidity (i.e., Coughenour and Saad, 2004;Hasbrouck and Seppi, 2001;Huberman and Halka, 2001;Karolyi et al, 2012), 3 which refers to the time series phenomenon of co-movements in liquidity pattern due to some common fundamental determinants across assets in the stock market. Several successive empirical studies have tested this phenomenon both in the developed and emerging markets, thereby generally confirming the existence of commonalities in liquidity in the stock markets (i.e., Domowitz et al, 2005;Fabre and Frino, 2004;Fernando et al, 2008;Galariotis and Giouvris, 2007;Gibson and Mougeot, 2004;Martinez et al, 2005;Pastor and Stambaugh, 2003;Pukthuanthong-Le and Visaltanachoti, 2009). 4 Empirical studies have examined the role of macroeconomic forces in explaining stock market liquidity with new theoretical foundations.…”